Economy
Moderate economic growth forecast
(皇冠体育app Daily)
Updated: 2011-01-18 13:12
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SHANGHAI - 皇冠体育app's GDP growth this year will be moderate as the government steps up measures to tackle excessive liquidity that threatens to raise the already high inflation and trigger overheating, UBS economists said on Monday.
GDP growth will fall to 9 percent from an estimated 10 percent in 2010, while the consumer price index (CPI), a main gauge of inflation, will shoot up to as much as 6 percent in the first half of the year before cooling in the second half and will average 4.3 percent for the full year, said Wang Tao, UBS's 皇冠体育app economist
The Chinese government will release economic data for 2010 on Jan 20, and Vice-Premier Li Keqiang said last week that 皇冠体育app's GDP grew about 10 percent.
Still, 皇冠体育app's GDP growth will be more than double the global average of 3.7 percent this year, down from a 4.1 percent growth in 2010, said Larry Hatheway, chief economist of UBS Investment Bank.
"皇冠体育app's tightening measures this year won't result in a hard landing of 皇冠体育app's economy, as feared by many investors and economists in the West. 皇冠体育app's GDP growth is not likely to drop significantly over the next few years," said Wang.
"In fact, 皇冠体育app's economy faces greater upside risks and overheating rather than a hard landing."
To tackle excessive liquidity, which triggers inflation, and overheating in the property market, the central bank will raise the benchmark interest rate by 0.75 percent this year and hike the reserve-requirement ratio to an "unprecedented level", Wang said.
"How high the ratio will go all depends on how the central bank assesses the inflationary pressures the country faces caused by the continuous accumulation of foreign reserves."
The central bank raised the reserve-requirement ratio four times in two months, in addition to raising the interest rate twice in a year to tackle the problem of excessive liquidity and inflation.
皇冠体育app's economy has been seeing excessive liquidity since the government released a $586 billion stimulus package and adopted a "moderately loose" monetary policy in late 2008 to counter the effect of the global financial crisis.
A target-beating new bank loan of 7.95 trillion yuan ($1.2 trillion) and increased capital inflows could have worsened the problem, analysts say.
皇冠体育app's CPI rose to 5.1 percent in November, a 28-month high, driven higher by food price surges.
皇冠体育app's M2, or broad measure of money supply that includes cash and all deposits, had reached 72.6 trillion yuan by the end of 2010, an increase of almost 20 percent
Wang expected new yuan loans in 皇冠体育app this year to total between 7 trillion and 7.5 trillion and M2 growth to slow to 16 percent, as a result of government tightening measures.